2 hotels plan prompts rate, demand concerns

A Wisconsin hospitality company is planning to build two hotels between Briarwood Mall and I-94 in Ann Arbor, in the two remaining lots of the mall development.

Raymond Management Co. of Middleton, Wis., says it has been looking at the Ann Arbor market for some time and can fill a void with an extended-stay and a business travelers' facility.

Local industry observers, however, expressed concern over weakening demand for rooms, and the rates the new hotels could be forced to charge.

Raymond is proposing two four-story hotels with a combined total of 227 rooms, according to plans filed with the city last week.

"We have had Ann Arbor on our radar and have deliberately been patient in selecting an ideal location," said Jeff Kraemer of Raymond's Wisconsin office. "Ann Arbor is a market similar to many markets we are active in, such as Madison, Wis., and Boise, Idaho. We feel this is a niche we understand and can excel in."

Raymond has an option to buy the land from the owner, an entity of Simon Property Group in Indianapolis. Simon is the largest mall developer in the U.S., taking over Briarwood during its acquisition of the Mills Co. in early 2007.

Raymond has hotel properties in Arkansas, Idaho, Illinois, Minnesota, Missouri and Wisconsin, most of which are Hampton Inns.

The 8.28-acre property represents the final two lots in the Briarwood Mall, a 1 million-square-foot super-regional center built in 1973.

"This site is the last vacant parcel and will complete the mall area development," according site plans filed by Earl Ophoff of Midwestern Consulting.

Construction on the 97-room Hilton Garden Inn and the 130-room TownePlace Suites by Marriott would begin this fall and go through fall 2009, according to the site plan. The smaller hotel is an extended-stay facility, and the larger one is meant for families or business travelers.

Extended Stay America, a national chain, has a hotel at Briarwood already.

The project cost is estimated at $24 million, not including land costs. The two plots are valued at a combined $1.5 million, according to City of Ann Arbor records.

If that's the price Raymond ends up paying, each room would cost approximately $112,344 to build. And according to Chuck Skelton, president of Ann Arbor-based Hospitality Advisors Consulting Group, that means the hotel would only be profitable if 65 percent of the rooms were rented at an average rate of $112 per night.

And that, he said, is higher than the average room rate in Washtenaw County in the high-$80 range per night.

"My opinion is that Ann Arbor is a tough place to develop in," Skelton said. "They're going to have to charge a significantly higher rate than is currently being charged."

Bulk room deals for the University of Michigan is one reason the average prices are relatively low, Skelton said.

Kraemer wouldn't give specific rate information but said, "The market is ready for a couple of high-quality hotels, and ultimately it will be our guests who decide the value of staying with us."

Jim Koen, general manager of the Four Points Sheraton and head of the Washtenaw County Hotel & Motel Association, also wondered about the room rates, and the time it would take for the new hotels to become profitable.

"They have to have deep pockets because once it opens, it takes a while to develop a customer base to repay the investments," he said.

Koen also said many hotels in the area are mature enough to operate without any mortgage payments.

"They're completely paid for, and able to be more competitive in pricing," he said.

Demand could be another issue. The occupancy rate for county hotels is 63 percent, Skelton said, meaning that 63 percent of rooms are filled at any given time. That's about average for the country but high for the state, he said.

Adding 227 rooms to the 4,000 already in the county is a significant increase, Skelton said. "That's a pretty big bump," he said.

"Any time you have new inventory, it adversely affects the rest of the lodging industry in Washtenaw County," Koen said. "Unfortunately, right now demand is decreasing."

Skelton said the TownePlace Suites by Marriott and Hilton Garden Inn are good brands, and could attract customers by virtue of being new. The Hilton Garden Inn would include a restaurant.

An additional 240 rooms in two hotels are included in plans for the Huron Acres development near the Arborland mall, about 3 miles east of Briarwood.

Raymond is building hotels in other states as well. It has a new project in the works in Oklahoma City and another under construction in Joliet, Ill., which will be its first TownePlace Suites.

The developer is proposing fewer parking spaces at the Briarwood hotels than would normally be required - 198 instead of 227, or one per room. But the filings point out that nearby mall parking could be used. Raymond also needs an amendment to an existing planned-unit development in order to build up to 60 feet in height.

A deal to build a 47,000-square-foot Dick's Sporting Goods on the site, dating from 2005, never was finalized.

If all goes as planned, the Ann Arbor Planning Commission would review the hotels at its June 17 meeting.

Skelton said adding more rooms to the local market may impact the ongoing discussions of a conference center/hotel complex in downtown Ann Arbor.

"The fact of the matter is: it's high-risk. Without public assistance of some type, a private investor is not going to take that kind of risk," Skelton said, especially with new hotels being built locally.

But Jesse Bernstein, president and CEO of the Ann Arbor Area Chamber of Commerce, said the hope is that a large conference center and hotel could attract more demand for hotels throughout the area.

He said there is currently no facility in town that could feed a group of 1,000 to 1,200 people, and that if one were built it would bring in large groups that would then need space in other area hotels.

"What many of us feel is that having a facility would attract more people and could have an impact of bringing more people into other facilities," he said.